FTC, States Crack Down on 'Phoney' Philanthropy

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The Federal Trade Commission, working with law enforcement in 34 states, completed a crackdown on charity fraud by fundraising telemarketers in a national sweep dubbed "Operation Phoney Philanthropy," the agency said yesterday.

Five charity fundraising operations face civil complaints of misleading donors in their solicitations for contributions as part of the sweep. The FTC focused on "badge scams," fundraisers who claim to solicit funds for police and firefighter organizations but who allocate little revenue to their promised causes.

Such scams continue even though fraudulent firefighter and police charity scams involving Sept. 11 seem to have tapered off, said Howard Beales, director of the FTC's bureau of consumer protection. He said that fraudulent fundraising schemes were "particularly heartless scams."

The cases filed by the FTC preceded the May 5 Supreme Court decision in Madigan v. Telemarketing Associates in which the court ruled that the First Amendment did not protect fraudulent claims made by fundraisers but confirmed existing protections for legitimate nonprofit fundraisers, Beales said. The FTC applauded the decision but has always maintained the right to pursue fraudulent claims made for charity fundraising, he said.

The Supreme Court has barred states from setting standards on how much of the money collected by fundraisers should go to charity. However, the Better Business Bureau stipulates that charities should spend no more than 35 percent of annual donations on fundraising costs.

Telemarketing is the most expensive method of fundraising, particularly when used for acquiring new donors, and should be used in conjunction with less-expensive solicitations such as direct mail, said Art Taylor, president/CEO of the bureau's WiseGiving Alliance. Donors should expect that when they donate in response to a telemarketing solicitation, their donation is more costly to acquire.

The five cases filed by the FTC include:

· Community Affairs Inc., Pompano Beach, FL, also known as Powertel and Mountaineer Teleservices, is charged with having its agents represent themselves in telemarketing calls as members of law enforcement or firefighting organizations. Clients, from which the company retained 75 percent to 90 percent of donations raised, included the Virginia Firefighters Foundation and the Texas Fraternal Order of Police, the FTC said.

· West Coast Advertising, San Diego, is charged with falsely claiming in telemarketing calls that a client, the Junior Police Academy, is connected with local law enforcement agencies and sends police officers to local schools, and that donations to client American Veteran's Network, a program of Shiloh International Ministries, benefit particular veterans causes.

· DPS Activity Publishing, a for-profit publishing company based in Canada, made telemarketing calls to businesses in small U.S. communities charging $5 for books the company falsely stated would go to children in hospitals, when the hospitals either never received or had no interest in the books, the FTC alleged. A federal judge in Seattle ordered that mail sent to the company in Canada from the United States be halted.

· Clinton Greenwell of Texas is charged with misrepresenting himself as a member of a law enforcement agency and falsely telling businesses they were obligated to pay for advertising in publications including State Police Magazine, State Police Enforcers Yearbook and State Police Officers Yearbook.

· Tamara Bell of Anaheim, CA, is charged with creating six sham nonprofit corporations to illicitly raise funds for personal enrichment. A settlement of the charges bans the six nonprofits from telemarketing and restricts Bell's use of telemarketing for charity fundraising unless she discloses how contributions will be spent and the nonprofit's city and state, and alerts consumers that she is a professional fundraiser.

Sixteen states also filed law enforcement actions related to the sweep, the FTC said.


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